Unleashing Private Sector Job Creation: Challenges and Opportunities for Lesotho

Selected Issues Papers, October 14, 2025

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Lesotho’s public sector led growth and employment model has struggled to develop a flourishing labor market.
Recent external shocks have made developing job-rich growth an even more urgent priority.
The primary challenge is a lack of labor demand due to:
- a small, undiversified private sector, and
- steep barriers to firm growth.
Labor supply issues also compound the challenge, including skills mismatches.
Addressing the problem requires concerted effort across multiple policy fronts combining:
- public-sector reform,
- business-environment reform,
- expanding financial access for firms,
- better skills matching, and
- careful macroeconomic management.

Public-sector reform to rebalance the employment and growth model away from public-sector–led dynamics.
Business-environment reform to lower barriers to firm growth and diversify the private sector.
Expand financial access for firms to support entrepreneurship and scaling of businesses.
Improve skills matching between labor supply and private-sector demand.
Maintain careful macroeconomic management to support a transition toward job-rich private-sector growth.